Amazon Earned More Than $1 Billion Through Secret Price-Raising Algorithm: FTC

The e-commerce giant allegedly deployed a secret algorithm, internally known as “Project Nessie,” that raised the prices on its online store.

Amazon created a secret algorithm that helped the e-commerce giant generate an extra $1 billion dollars, the U.S. Federal Trade Commission (FTC) alleged in a new court filing on Nov. 2.

In September, the FTC and 17 states filed an antitrust lawsuit against Amazon, but many details were withheld until Nov. 2, when a version of the lawsuit with fewer redactions was made public in the U.S. District Court in Seattle.

According to the new, less redacted complaint, Amazon allegedly deployed a secret algorithm, internally known as “Project Nessie,” that raised the prices of items on its online store and, in turn, across the market accordingly.

Knowing that many websites set their prices to match Amazon’s, the company allegedly developed Nessie to increase prices on products that other retailers would follow.

After outside retailers began matching or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, which resulted in $1 billion in excess profit.

The FTC accused Amazon of turning on and off Project Nessie to avoid scrutiny.

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“Aware of the public fallout it risks, Amazon has turned Project Nessie off during periods of heightened outside scrutiny and then back on when it thinks that no one is watching,” it stated in the complaint.

“Project Nessie generated enormous profits for Amazon even though its higher prices caused Amazon’s unit sales to decrease. In 2015, for example, Project Nessie’s higher prices reduced Amazon’s gross sales revenue while increasing Amazon’s profits on those reduced sales by an extra $363 million. In 2018, Amazon estimated that Project Nessie increased Amazon’s yearly profits by $334 million.”

The FTC called the algorithm an “unfair method of competition” because it manipulates other online stores into raising prices, allowing Amazon to do the same.

“The sole purpose of Project Nessie was to further hike consumer prices by manipulating other online stores into raising their prices,” the FTC alleged.

The Epoch Times reached out to Amazon for comment but received none by press time.

Amazon spokesperson Tim Doyle told Reuters that the FTC “grossly mischaracterizes” the pricing tool and that the company stopped using it several years ago.

“Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable,” Mr. Doyle said.

According to the regulator, Amazon claims that it has currently paused the project, but the company can turn it on at any time, as last year, fearing inflation could hurt Amazon’s profitability, Doug Herrington, CEO of Worldwide Amazon Stores, allegedly asked to turn on the company’s “old friend Nessie, perhaps with some new targeting logic” to boost profits for Amazon’s retail unit.

The FTC complaint also accused Amazon of seeking to hide information about operations from antitrust enforcers by using the Signal messaging app’s disappearing message feature and stated that the company destroyed communications from June 2019 to early 2022.

‘Anti-Discounting Tactics’ and Pushing Junk Ads

The agency accused Amazon of using a variety of “anti-discounting tactics to prevent rivals from growing by offering lower prices” and of using “coercive tactics,” particularly with its order fulfillment service, to prevent competitors from achieving the necessary scale to compete effectively.

“When Amazon detects elsewhere online a product that is cheaper than a seller’s offer for the same product on Amazon, Amazon punishes that seller. It does so to prevent rivals from gaining business by offering shoppers or sellers lower prices,” the complaint reads.

The FTC also alleged that under then-CEO Jeff Bezos’s direction, the company flooded its online store with “pay-to-play advertisements” and “irrelevant junk ads” despite knowing that these junk ads were “defects.”

The FTC alleged that Amazon executives know that the practice creates “harm to consumers” by displaying less relevant search results.

“Mr. Bezos instructed his executives to ‘accept more defects’ because Amazon can extract billions of dollars through increased advertising despite worsening its services for customers,” the complaint reads.

Targeting Sellers

Amazon also required sellers under the company’s Prime feature to use its logistics and delivery services even though many would prefer to use a cheaper service or one that would also service customers from other platforms where they sell, according to the FTC.

The FTC alleged that an unnamed Amazon executive who headed global fulfillment realized that letting sellers be on Prime without using Fulfillment by Amazon was “fundamentally weakening (Amazon’s) competitive advantage” by encouraging sellers “to run their own warehouses.”

Reuters contributed to this article.

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